And Now For Some Really Bad News...

There is, of course, another segment of the small-company universe, one we often overlook in our eagerness to spotlight the job generators. I'm referring to those steady-state small businesses that play such a crucial role in maintaining employment stability. Unfortunately, we are now forced to pay attention to their contribution because it can no longer be taken for granted.

The news on these companies, the backbone of the U.S. economy, is grimmer than ever. Business failures hit an all-time high in 1991 -- more than 87,000 -- and the numbers through this past June suggest that the total for 1992 is going to be even higher, easily topping 100,000 failures for the year. Eyewitnesses confirm the extent of the crisis. Recently, I conducted a survey of 12 credit managers who work at local telephone companies around the country, on the theory that you know a small business is in real trouble when it doesn't pay its phone bill. The credit managers described a debacle unlike any they had ever seen. "We turned off service in more small companies this past summer than at any time in four decades," one credit manager in the Northeast told me. "At the moment, we are trying to negotiate payment schedules with literally thousands of small-business customers who are fighting for survival. I can hardly keep up with the demand."

Further confirmation of the gloomy state of affairs comes from David Birch, founder and CEO of Cognetics Inc., a Cambridge, Mass., market-research company that has done pioneering work on small-business trends. He reports a significant slowdown over the past two years in the rate at which small companies are creating jobs. "The situation is as bad as anything I've seen," says Birch, who has tracked job generation through at least two prior recessions. "In fact, it's probably worse."